13 May 2026 IFA Roundtable Q. 1, 2026-1087881C6 - Subsection 84(2) and Withholding Tax on Payments to Non-Residents

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: In the context of an amalgamation, whether a payment received by a shareholder exercising dissent rights pursuant to applicable corporate law falls within the scope of subsection 84(2).

Position: Depends on the relevant facts and circumstances, but generally no, in circumstances where the amalgamation and exercise of the shareholders' dissenting rights and subsequent payment are undertaken for bona fide non-tax reasons.

Reasons: See below.

2026 IFA Annual Conference – CRA Roundtable

Question 1 – Subsection 84(2) and Withholding Tax on Payments to Non-Residents

If subsection 84(2) applies to deem a corporation to have paid a dividend on the shares of a particular class, all shareholders of that particular class of shares will be deemed to receive a dividend in proportion to their shareholdings, such that withholding tax will apply in respect of all non-resident shareholders that hold shares of the particular class.

Assume that a Canadian resident corporation is amalgamated with another Canadian resident corporation. In accordance with a dissenter’s statutory right to receive fair value for their shares under the applicable corporate law, a payment is made by the newly amalgamated corporation to a shareholder who has dissented from the amalgamation (“Dissent Payment”).

In light of the Federal Court of Appeal’s decision in Foix et al. v. The King, 2023 FCA 38 (“Foix”), should the Dissent Payment be considered a distribution or appropriation in any manner whatever, to or for the benefit of the shareholders of any class of stock, such that subsection 84(2) will deem the corporation to pay a dividend equal to the amount by which the Dissent Payment exceeds the reduction of the PUC of that class of shares? Assume for this purpose that there has been a winding-up, discontinuance or reorganization of the predecessor corporation’s business.

CRA Response

Preliminary Comments

It is the CRA’s longstanding position that where a shareholder dissents from an amalgamation and, pursuant to applicable corporate law, receives consideration that is not shares of the newly amalgamated corporation, such as cash, subsection 84(3) will not apply to deem such shareholder to have received a dividend. Subject to our comments below, capital gains treatment will thus generally apply to the dissenting shareholder, who will realize proceeds of disposition rather than a deemed dividend.(footnote 1)

Subsection 84(2)

Generally stated, subsection 84(2) applies on the distribution or appropriation of funds or property of a Canadian resident corporation “in any manner whatever to or for the benefit of its shareholders”, on the discontinuance, winding-up or reorganization of the business of the corporation.

The Federal Court of Appeal (“Court”) in Foix reaffirms the broad scope of subsection 84(2). With respect to the expression “in any manner whatever”, the Court stated in Foix, at paragraph 68, that these words are “far-reaching” and are “anchored in history as they have always been part of this provision, and they faithfully reflect its anti-avoidance purpose”.

The Court also noted that a set of structured transactions must be viewed as a whole and confirmed that it is possible for subsection 84(2) to apply even when a taxpayer is no longer a shareholder at the time funds or property are received. The Court further stated, at paragraph 69, that “in the presence of an orchestrated attempt to extract surpluses without tax or at a reduced rate, the intention of Parliament requires a reading of subsection 84(2) that balances the words that are used, as an overly literal reading would defeat its anti-avoidance mission.”

In our view, the decision in Foix confirms that subsection 84(2) is to be applied in a manner that supports its anti-avoidance purpose. The CRA is of the view that the application of subsection 84(2) is not limited to the scenario presented in Foix. With this in mind, it is incumbent on the CRA to determine whether, in any particular case, the transactions being reviewed involve the distribution or appropriation of property of a corporation in circumstances where the entirety of the conditions for the application of subsection 84(2) are met.

Typically, where a corporation resolves to amalgamate, shareholders that exercise their dissent rights are entitled to receive fair value for their shares pursuant to the applicable corporate law statute. Generally speaking, a payment made to dissenting shareholders, such as the Dissent Payment, is not a negotiated amount, but rather, a statutory remedy available when a shareholder disagrees with certain fundamental corporate changes. Accordingly, the CRA would not generally seek to apply subsection 84(2) in circumstances where the amalgamation and the exercise of the shareholders’ dissenting rights and subsequent Dissent Payment are undertaken for bona fide non-tax reasons.

However, given the broad scope of this anti-avoidance provision and the Court’s warning against an overly formalistic and restrictive approach that would be contrary to a textual, contextual and purposive interpretation of subsection 84(2), the CRA could seek to apply subsection 84(2) to a situation that includes the exercise of a shareholder’s dissent right when a corporation resolves to amalgamate, depending on the facts of the particular situation. The CRA would seek to apply subsection 84(2) if, after considering all the relevant facts and circumstances applicable to a particular situation, it is necessary in order to give effect to the provision’s underlying anti-avoidance purpose.

Tania Ng
2026-108788
May 13, 2026

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. In these circumstances, the recipient and the amalgamated corporation should consider whether they have obligations under section 116. Such obligations may arise if the shares formerly held by a non-resident recipient were taxable Canadian property and not excluded property.